UK manufacturing engineer working on a lathe

What does the EU trade deal mean for manufacturers?

The trade deal struck between the EU and the UK has been a relief to many businesses, but there will still be a great deal of changes and difficulties ahead. For manufacturers, the question is how does the EU trade deal impact the sector, which not only exports to the EU, but also sources a great deal of materials from the EU as well?

Tariffs and sourcing changes post-Brexit

Businesses will need to pay particular attention to where their materials are sourced from when manufacturing with regard to the rules of origin. If materials are sourced from the EU, manufactured into a product in the UK, and then shipped back to the EU, they should have a zero tariff applied to them.

If parts are sourced from a third country, such as China, and then used to produce a product in the UK, when this product is shipped to the EU it may not fit the zero tariff category. The UK business will then have to pay a tariff when exporting.

Customs requirements after Brexit

Now that the UK has a trade deal with the EU, companies need to complete a full customs declaration.1 This is an extra burden for manufacturers and requires a significant amount of additional administration.

For businesses exporting their goods and delivering them using their own drivers, it is essential to ensure that all paperwork is in place prior to reaching the continent. Haulage companies are having significant issues at borders.2 many shipping from the EU into the Republic of Ireland — are using the new shipping route from Cherbourg to Rosslare — to avoid going through the UK border and facing challenges.3

Cost of shipping post EU-UK trade deal

The need for transit documents introduces the biggest imbalance in EU-UK trade post-Brexit. While there are no borders on the way to the UK, there are many on the way back, which results in trailers returning empty and increases the cost of freight for manufacturers. This cost will likely need to be passed on to the end consumer in order for these companies to stay operational. Large hauliers have reduced outbound trucks to ensure they are fully compliant and avoid trucks are held at Dover or at EU borders.

The increase in shipping costs for goods purchased from countries such as South East Asia could lead to those suppliers no longer accepting orders from the UK, in order to avoid passing the increased costs on to the UK businesses. This may lead to shortages of some goods, which in turn could increase costs in a supply and demand environment. It could however, ultimately pave the way for UK manufacturers by increasing their viability, and we may see more onshoring of products and supply chains post-Brexit.

Brexit impact on supply chains

How will differences in demand and supply affect your distribution network? What is your Plan B, if supply chain timings are much longer than expected?

  • Procurement: As the supply of raw materials and components might be at risk or become much more expensive, companies should re-evaluate their existing sourcing mechanisms. This includes focusing on onshoring opportunities and local suppliers, or second source suppliers, to guarantee a reliable supply at competitive costs.
  • Warehousing: In the short term, supply chain managers will also need to increase their safety inventory to ensure business continuity, as it is likely there will be ongoing delivery delays at borders. Most Brexit scenarios will pose a threat to service levels, so forward planning is key. In the medium term, companies will need to re-assess their inventory strategy in light of new operating conditions. This might include a re-adjustment of inventory levels to reflect the new demand and supply conditions, as well as potentially relocating warehouses to outside the United Kingdom. From an insurance perspective, a review of your marine and stock throughput policies will be required to ensure that goods are covered correctly at the locations where they will be stored.
  • Product Liability and Product Safety laws: These are being amended and have the potential to reduce information flow about dangerous products sold in the UK and EU markets, and in turn impacting consumer safety in the UK.4 With regard to insurance, companies holding product liability insurance should revisit their policy terms and examine the policy coverage. The implications are that they may be affected as a result of the changes to the Consumer Protection Act 1987 (CPA) and the General Product Safety Regulations 2005 (GPSR). Having an established supply chain and information on your suppliers’ insurance policies is prudent for all importers of goods.

EU travel restrictions

Manufacturers that frequently travel to the EU for business purposes will now be joining the “rest of the world” queue, as the UK no longer have freedom of movement. Employees of those firms are likely to be questioned on their reason for visiting, and there could be additional paperwork required; check GOV.UK for guidance. This also highlights issues relating to travel insurance policies: ensure that your policies cover your workforce whilst travelling, as access to European healthcare as we know it will change and EHIC cards will only be valid until their expiry date.

If you have any other concerns about your insurance policy cover relating to the changes affecting your business, get in touch with your broker and seek advice.